Federal Budget 2017 Insights: Life sciences

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Prescription medicines

The prescription drug market has undergone several measures in an effort to curtail the $10.5 billion expenditure burden of the Pharmaceutical Benefits Scheme (PBS). With a drug budget that is facing ongoing growth as the population ages, ongoing pressures through increased prevalence of chronic illness, as well as new and innovative drugs awaiting reimbursement, the government has announced further reforms to the prescription drug market.

The budget includes several measures aimed at saving $1.8 billion on the PBS over 5 years through implementing changes geared towards reducing prices and increasing the use of generic medicines. Currently, just over 55 per cent of all drugs dispensed in Australia are generic drugs.1 This is in stark contrast to other markets such as the United States and the United Kingdom (over 80 percent)2 3, and Canada (69 percent).4 This is to be achieved through a two pronged approach; firstly targeting the prescription habits of physicians through changes to prescribing software used by doctors; and secondly, through continued changes to the pricing mechanics of drugs.

The Government is planning modifications to the prescribing software used by doctors so that non-proprietary names are applied as a default, often being represented by the generic name. This may be seen by doctors as taking away their control of treatment of their patients. However, doctors can maintain prescription control by having to actively nominate the drug of choice by brand name rather than leave as the default name. The AMA have expressed some concern around independence as a result of this change whereas the Pharmacy Guild support generic substitution policy as good policy for the government.

Changes to pricing mechanics within the PBS are also evolving. Under the previous Health Minister, a 5-year plan to reduce the cost of branded pharmaceuticals and biologics still under patent (Formulary F1) was implemented in the form of a mandatory 5 percent price cut after being on the list for 5 years. This pricing strategy was due to expire in 2020. The announcement last night is seeing this mechanism extended for a further two years, until 2022.

Furthermore, branded products that remain in Formulary F1 for 10-14 years will come under a one off mandatory 10 per cent, commencing 1 June 2018, with subsequent reductions each year as medicines reach their 10-year anniversary, through to 2021. These changes will see a need for longer term pricing strategies, beyond seeking reimbursement, for the branded pharmaceutical companies.

Whereas upon losing patent protection, branded drugs were hit with a 16 percent mandatory price cut, the announcement last night sees this extending to 25 percent. The pricing disclosure mechanism is expected to remain albeit with some modification to the threshold once branded medicines are excluded from the calculation (after 3 years in Formulary F2).

The commitment from the Health Minister is that $1.2 billion of the savings are to be ploughed back into the PBS budget, to fund new and innovative drugs that will lead to better health outcomes for all Australians. These changes are to be linked in a 5-year agreement between the Government and Medicines Australia, as well as supported through agreements with the Generic and Biosimilar Medicines Association (GBMA) and the Pharmacy Guild.

Summary of PBS changes

Five percent mandatory price cut for branded medicines in F1 greater than 5 years extended to 2022

Upon loss of exclusivity and entry of generic / biosimilar drugs, branded medicine swill incur 25percent cut (triggered through the transition from F1 to F2)

Threshold modifications to pricing disclosure calculations once branded medicines are excluded from the calculation (after three years in F2).

e-Health

The federal government has allocated $374.2 million over two years from this July to provide all Australians with a My Health Record, unless they choose not to have one.

In a surprise move in last night’s budget, the government announced the funding will be used to support the expanded roll-out of the opt-out model, to improve operations of the system and to make it easier for health providers to register for it.5

The Government will provide $825.0 million over three years from 2017-18 to community pharmacies to support and improve Australians’ access to medicines. This includes $600.0 million to continue and expand existing community pharmacy programs, which deliver medication management services and are designed to improve patient care and outcomes.

As an added bonus, the Government has also committed $225 million to community pharmacies and pharmaceutical wholesalers as a result of prescription volumes being lower than forecast in the Sixth Community Pharmacy Agreement (6CPA).

In summary, the Government is looking to support greater access to quality medicines to patients in need through reducing the burden of existing medicines. Through the mechanisms released in this Budget, it is anticipated that the volume of Generic and biosimilar medicines will grow strongly, and with the realised savings ploughed back into the PBS to list newer and more innovative medicines, coupled with greater support for alternate patient treatment pathways through community pharmacy, the overall health and wellbeing of Australians should improve.

References

PBS Expenditure and Prescriptions 12 months to June 2015

Statista.com: Proportion of branded versus generic drug prescriptions dispensed in the United States from 2005 to 2015; Proportion of branded versus generic drug prescriptions dispensed in the UK from 2005 to 2015